Introduction
On December 19, 2016, the CBI1 published its feedback statement on the last consultation on CP86 and final guidelines on fund management company effectiveness. This concludes a total of three years of policy work by the CBI where three separate consultations were undertaken.
The key updates in the feedback statement relate to clarification on the location rules for directors and designated persons, rules on record keeping and confirmation of the timeframe for the implementation of all required changes under CP86.
Rules on the Location of Directors and Designated Persons (Effective Supervision)
The CBI has confirmed that a fund management company which has a PRISM2 impact rating of “medium low” or above will be required to have at least:
- Three Irish resident directors or at least two Irish resident directors and one designated person based in Ireland;
- Half of its directors in the EEA; and
- Half of its managerial functions performed by at least two designated persons resident in the EEA.
The CBI has confirmed that a fund management company which has a PRISM impact rating of “low” will be required to have at least:
- Two Irish resident directors;
- Half of its directors in the EEA; and
- Half of its managerial functions performed by at least two designated persons resident in the EEA
Most fund management companies, including self-managed structures, have a “low” PRISM impact rating.
Factors impacting the PRISM impact rating include:
- AUM3
- Number of sub-funds
- Type of investments (i.e. how risky are the investments and the extent of the use of derivatives)
- Service providers (i.e. the less well established the service providers, the higher the rating).
The key point to note is that the CBI has scaled back on the previous requirement to have a majority (at least two thirds) of fund directors based in the EEA. The CBI has clarified that the BREXIT vote in the UK was a significant factor behind the change in stance. Given the prevalence of UK (36.9%) and US (40%) fund managers who operate Irish domiciled funds, it was felt by respondents to the consultation that imposing the two thirds rule would have a negative impact on Ireland’s competitive position as a fund jurisdiction for non EEA fund managers, in particular those from the UK (post BREXIT) and the USA. The modification of the location rules brings Ireland into line with other jurisdictions, particularly Luxembourg.
During the consultation process, it was also highlighted that investors could potentially suffer if experienced personnel employed by non EEA fund managers were replaced by individuals with less experience within the EEA. It was acknowledged that it is important to ensure that the necessary expertise is available to fund boards irrespective of where the personnel are located.
Record Keeping and Access to Information
Fund management companies must retain records that can be retrieved on an immediate basis. If the CBI requests documentation from a fund management company before 1pm (Irish time) on a given day, it should be provided to the CBI on the same day. For any documentation requested by the CBI after 1pm (Irish time) on a given day, it should be provided to the CBI by 12pm on the following business day. There is also a requirement for fund management companies to maintain and monitor daily a dedicated e-mail address. The dedicated e-mail address should be provided to the CBI.
Transition Timeline
The CBI intends to issue amended UCITS and AIF regulations in 2017.
For existing fund management companies, full compliance with CP86 is required by July 1, 2018. Full compliance includes adhering to the rules around the streamlining of managerial functions, the organisational effectiveness role, the retrievability of records rule and the rules relating to effective supervision/residency rules.
The CBI will only approve applications for authorisation from any new fund management company submitted on or after July 1, 2017 where the fund management company will be organised in a manner which complies with the new rules introduced by CP86.
You can download a copy of our Central Bank of Ireland Final Guidance – CP86 December 2016 here
How can KB Associates Assist?
KB Associates offers a range of services to investment funds including:
- The provision of UCITS/AIF management company services
- The provision of designated persons to perform UCITS business plan and AIFMD programme of activity management functions
- The provision of UCITS/AIF operational support
If you would like to discuss any issues raised in this article, please feel free to contact Mike Kirby (+353 1 667 1980), Peter Northcott (+44 203 170 8813) or Mike Parton (+1 345 946 4224).
1 Central Bank of Ireland
2 Probability Risk and Impact SysteM
3 Assets under Management